- Nishant Patel and Bhushan Patil.
‘It is always wise to look ahead, but difficult to look further than you can see.’
- Sir Winston Churchill
Harvard MBA Graduating Class was asked if they had written goals of life. - 3% of them said yes.
- 13% of them said yes but they had not written it.
- Rest 84% said "No"
10 years later, on above survey found that; 13% students who had goals but not in written were earning twice than the earning of 84% students.
While 3% students who were clear with their goals were earning 10 times as much as the other 97% Students.
Today's generation believes and follows following rule in their life;
Income - Expense = Savings
This needs to change. Apply following rule in your life and make your life free from financial risk. Income - Savings = Expenses
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To change our spending habit we have to have clear goals, control our emotions and maintain strict discipline to ensure that our goals are achieved. This is not enough to have clear goals. To achieve goals one needs to have "Financial Planning".
Financial plan:
Simply put, a financial plan is a budget for spending and saving for future income.
You would have heard the phrase ‘financial planning’. Do you really know what it means?
This is a term least understood and most abused. Every bank, mutual fund and insurance companies claims to offer ‘financial planning’, what all they are doing really is setting you up to buy one or more of their products. Most distributors/ advisors too will use the word ‘planning’ when they explain the merits of their products and how these will prove useful to you.
What they are doing is called ‘selling’.
Financial planning is a blueprint or framework that helps you achieve your life goals through appropriate financial management.
Financial planning is the most important way through which a person can allocate his current income to secure his future. Financial planning ensures that a person has the right amount of money at right time as and when financial need arises in future. It is a process that helps an investor find out various ways through which he can reach his defined & desired goals by gathering relevant information about his current financial status and adopting suitable strategies. Financial planning helps not only to meet future financial expenditure but also involves protection of self and family against any future contingencies.
Financial planning is the process of establishing personal and financial goals and creating a way to reach them. The financial goals can include buying a house, saving for your child’s education / marriage, planning for your retirement or simply creating a wealth for future. Just saving in NSC or PPF will not guarantee your future. Neither investing in ELSS funds just to save tax will help.
Most important aspect of the financial plan is that it will help you build wealth. I’m sure everyone here would like to be rich and wealthy. So here is the recipe that will help you reach to richness.
Why Financial Planning
Anyone who has financial goals to achieve, needs financial planning. Financial Planning can help to achieve both greater wealth and security. Inadequate or improper planning can be financially disastrous. Any sudden loss can wipe out accumulated wealth; insufficient savings for retirement can force an undesirable lifestyle and/or postponement of retirement; and improper tax planning can result in paying more than the necessary taxes.
But what are the few important reasons that stop people from planning…
- They feel they don’t have enough money to plan
- They think they are too young or old to start planning
- They are not ready to think about the bitter side of life, death, accident, illness…
- They keep on Procrastinating or delaying until they are in a bad situation.
Financial planning is not limited to any particular investment instrument like Mutual Fund, Fixed deposits etc. It is strategically dividing your investments in various instruments based on your needs.
Reasons for Financial Planning
- Inflation: You will have to protect & grow your wealth against Inflation.
- Rising Life expectancy estimated to increase from 77 to 90 in next decade.
- Protect lifestyle of family: Protection against the uncertainty.
- Planned Investment: Discipline & Scientific Approach to create wealth
Benefits of Financial Planning
- Knowing & understanding your financial needs / goals
- Achieving your goals with optimum use of resources
- Understanding impact of investment choices
- Adapting to changes in personal & financial situations
- Peace of mind – ensuring that your goals are not compromised
Financial Planning is a process and discipline
This provides a brief on your financial goals and a way to achieve them. It can help you focus on your financial resources and goals, and create a plan of action for attaining your dreams. However, your situation will change constantly over time, due to changes in your personal circumstances or in external circumstances. As a prudent person, you should review and update your plan periodically; to be sure it still meets your needs.
“Financial planning is a scientific process to ensure that right amount of money is available at the right time to fulfill your needs.”
A true financial plan does not focus on one aspect or product, but instead seeks to take all the areas of planning into consideration when making financial decisions. It includes,
- Cash Management
- Tax Planning
- Risk Planning
- Investment Planning
- Retirement Planning
- Estate Planning
And planning all these aspects is not enough in itself, because even if they are properly planned but not thoroughly managed they will lose their importance, so proper planning and management of each of these aspects makes a complete financial planning possible.
Preparing for financial plan:
As indicated earlier to achieve a goal, discipline and consistency is needed. So we will start with understanding our finances to be able to have clear foresight about goals.
There is a planner in every individual; everyone takes into account what will be the income, expenses in near future and accordingly people spend. It is very important to understand the income and expenses.
Next very important aspect is to identify various goals in one’s life like child(ren) education, marriage of child(ren), retirement savings. Once the goals are in sight, a person can imagine the expenses that will be incurred on these goals.
Protection of family members is utmost priority for everyone. So the first step that one can take is to get insured for health, life of oneself and near and dear ones.
All of us who have opted for home loans may know that their bank has asked them to take a term insurance that will be equivalent to the amount of loan approved/required. Does this make you wonder why, the insurance is sought so that the loan you have taken is repaid with help from the insurance proceeds that one’s heirs will get, thus banks play safe with their money. Lesson here is that every one like banks should get insured so that family is well supported post you, in case of unforeseen eventuality.
So financial planning is all about jotting down the goals, earmarking the investments, drawing a savings plan and building a support system for near and dear ones.
Professional opinion
It is advisable that every individual should get his plan drawn from the professional financial planners.
It will be easy for an individual to identify the goals and start investing arbitrarily. But the professional opinion and advice addresses various nitty-gritties with the finances. Important aspect of this is inflation adjustment i.e. Rs. 1,000 may not have its value in few years down the line as it has today.
Also the professional opinions will advice you on various investment avenues time to time. What is green today may not be green always.
Parting thought:
So it is never late to start investing. Start saving today with proper planning to safeguard your future. In short, let your money work for you!!
